Hard Choices

Larry Fink on Guiding BlackRock Through the Financial Crisis

March 21, 2012

Illustration by Jimmy Turrell

We’ve always been this odd duckling. When we started in 1988, we felt risk management was important. Very few people understand the risks they’re taking. It doesn’t mean avoiding risk. It means understanding what you’re taking on. We began talking about the credit bubble in 2006. You knew it would blow up, but you didn’t know if it would explode in two weeks or 10 years. We were wrong in terms of timing.

The most difficult thing I’ve done was signing a check for $13 billion-plus for Barclays Global Investors. It was spring of 2009, and we had just bought $1.8 trillion of equities. We’d never made a bet that big. In March the market had hit lows of 6400. Bank of America (BAC) hit $3 a share. Citigroup (C) was below a dollar. There were conversations in the press about the nationalization of the banking system. If that had happened, it would have been a very bad moment in American history.

We started our due diligence on the deal in April of that year. I thought the equity market would keep gaining, but at that moment my strategic decisions could have been wrong. If the market went back down to 6400, the deal would have been a disaster. We had to make a judgment call that equities were the right bet for that time. The Dow was at 8400 when we went to contract in June. I wouldn’t have done the deal if I wasn’t confident that it would continue to go up. What’s surprising is how many people still don’t trust equities.

That’s why we just launched our first retail ad campaign. There’s so much short-term thinking right now. People are frozen: worried about Iran, gasoline prices, volatility. We’re all so neurotic about living a better lifestyle, but no one is spending much time thinking about how to afford that extra longevity. If you’re 40 and going to live longer than you’d ever thought possible, you need to be thinking long-term. The risk isn’t investing; it’s sitting on cash that’s making zero percent interest.

We manage more money for school teachers and policemen and federal workers than anybody in the world. That’s an enormous responsibility. I do believe we have to be a public leader. There’s a lot of angst, and it’s not going away. — As told to Diane Brady